Banks, Deposits, Financial Services, Latvia, Loan

"New lending decreased compared to the previous year. New resident loans issued in 2017 totaled EUR 2.3 billion or by 23.6% less than in the previous year. However, new loans to resident households grew for the fourth year in a row (+5%)," the financial regulator said.

The aggregate bank loan portfolio shrank 4.6% in 2017, mostly due to a merger of a Latvian bank and a branch of a foreign bank. The portfolio of loans to resident companies fell 4% last year, the portfolio of loans to resident households was down 0.9% and non-resident loans declined 14%. If the effects of the above merger were excluded, the aggregate bank loan portfolio would have decreased 0.3%.

The quality of the loan portfolio continued improving in 2017. The share of loans overdue for more than 90 days was down to 4.1% last year.

Profitability of the Latvian banking sector has been falling for the second consecutive year. Aggregate banking profit in 2017 was EUR 236.1 million or down by nearly a half from the EUR 454.4 million profit made in 2016. The profit in 2016 was influenced by one-off revenue for sale of VISA Europe shares but, even if the effects of this transaction were excluded, the 2017 profit would be by 29.5% lower than in 2016. Last year profit was reported by ten Latvian banks and four branches of foreign banks, jointly representing 92% of the total banking assets.

Aggregate deposits in 2017 declined by EUR 1.1 billion or 5.1% due to a decrease in foreign deposits, the financial regulator said. Foreign deposits fell 12% last year to EUR 8.1 billion. Resident household deposits soared EUR 479 million, almost fully compensating for the reduction of deposits by the government and financial institutions. As a result, total resident deposits remained nearly unchanged at EUR 12.2 billion.

Despite the reduction of deposits, the liquidity ratio in the Latvian banking sector remained high - at 59.9% at the end of 2017 or two times more than the minimum requirement (30%).